CONSTRUCTION COST TRENDS IN NORTHERN CALIFORNIA

CONSTRUCTION COST TRENDS IN
   NORTHERN CALIFORNIA

CAROLLO ENGINEERS SPECIALIZES IN THE PLANNING, DESIGN,
AND CONSTRUCTION MANAGEMENT OF WATER AND WASTEWATER FACILITIES
FOR MUNICIPAL, PUBLIC AND PRIVATE SECTOR CLIENTS IN THE UNITED STATES. THE
FIRM IS HEADQUARTERED IN WALNUT CREEK, CALIFORNIA AND CURRENTLY
MAINTAINS 38 OFFICES IN 16 STATES.

CAROLLO HAS A STAFF OF FULL TIME CONSTRUCTION MANAGERS AND
INSPECTORS AND IS CURRENTLY RANKED 32 IN ENR’S TOP 100 CM-FOR-FEE FIRMS
IN THE US.

A HIGH BID LAST YEAR RAISED CONCERN FOR TWO
                 BAY AREA CITIES
• THE CITIES OF PINOLE AND HERCULES REQUESTED BIDS FOR A WASTEWATER TREATMENT
  PLANT UPGRADE PROJECT
• NINE FIRMS SUBMITTED PRE-QUALIFICATION PACKAGES, EIGHT WERE PREQUALIFIED
• A SURVEY TWO WEEKS BEFORE BID INDICATED FIVE BIDS WOULD BE RECEIVED
• A SURVEY DURING BID WEEK INDICATED THREE OR FOUR BIDS WOULD BE RECEIVED
• TWO BIDS WERE RECEIVED, THE LOW BEING 23% OVER THE ENGINEER’S ESTIMATE

WE RESEARCHED THE LOW BID RESPONSE

• THE INITIAL RESPONSES WE GOT WERE SOME OF THE TYPICAL REASONS GIVEN:
   • COMPETING BIDS FOR DIFFERENT AGENCIES
   • OTHER COMMITMENTS FOR PROJECT STAFF
   • LACK OF SUBCONTRACTOR INTEREST

• RESEARCH INDICATED THAT MULTIPLE AGENCIES WERE EXPERIENCING SIMILAR BID RESULTS
• DATA WAS PRESENTED AT THE APWA/NORTH BAY ENGINEERS CLUB MEETING AND UPDATED

BID CONDITIONS AND FACTORS TO BE REVIEWED

• RECENT BIDS THAT INITIATED THE REVIEW
• ONGOING CONSTRUCTION
• COST FACTORS
• STEPS TO CONTROL COSTS

BID PRICING IN BAY AREA
    Project Description               Owner       # of      Engineer’s    Lowest Bid    % of
                                                 Bidders     Estimate                  Estimate

Ione Backwash                Mokulumne Amador      2       $4,500,000    $6,860,000     154%
                             Calaveras IRWM
Seismic Upgrade Project      City of Martinez      2       $2,900,000    $3,625,300     125%

Alviso Storm Infiltration    City of San Jose      2       $116,194      $283,906       244%
Project
Iron Salt Facilities         City of San Jose      6       $4,600,000    $5,205,000     113%

McKinleyville WMF            McKinleyville CSD     2       $11,000,000   $12,327,300    112%

MWWTP Hypochlorite           EBMUD                 4       $1,700,000    $1,988,500     117%
Piping Replacement
Recycled Water Reliability   WCWD                  6       $23,700,000   $24,422,000    103%
Upgrades
Electrical Improvements      WCWD                  2       $4,039,000    $5,455,000     135%

Miscellaneous Mechanical     WCWD                  2       $1,965,000    $1,954,000     99%

Fluoridation Project         SCVWD                 2       $4,622,322    $5,386,000     117%

Orinda WTP Reliability       EBMUD                 2       $12,923,000   12,399,000     96%

ONGOING CONSTRUCTION IN BAY AREA
                                 Project        Cost, $      Completion Date
Marin General Hospital                       300,000,000      Summer 2020
706 Mission Tower building, SF               300,000,000       May 2017
500 Folsom tower building, SF                325,000,000     February 2019
California Pacific Medical Center, SF        329,000,000        July 2019
Sonoma Marin Rail Corridor                   361,000,000       April 2017
Moscone Center Expansion, SF                 400,000,000       June 2018
Salesforce Tower, SF                         450,000,000      Spring 2017
Highland Hospital, Oakland                   461,740,000     September 2017
180 Fremont tower, SF                        640,000,000       June 2017
VTA Berryessa BART extension                 770,000,000     December 2016
SF Muni 3rd Street Central Subway            840,000,000       June 2018
SF International Airport Terminal 1 Center   1,100,000,000   February 2021
Apple Campus 2                               5,000,000,000   December 2017

ONGOING CONSTRUCTION IN BAY AREA
                                 Project1                            Cost, $      Completion Date
Marin General Hospital                                            300,000,000      Summer 2020
706 Mission Tower building, SF                                    300,000,000       May 2017
500 Folsom tower building, SF                                     325,000,000     February 2019
California Pacific Medical Center, SF                             329,000,000        July 2019
Sonoma Marin Rail Corridor                                        361,000,000       April 2017
Moscone Center Expansion, SF                                      400,000,000       June 2018
Salesforce Tower, SF                                              450,000,000      Spring 2017
Highland Hospital, Oakland                                        461,740,000     September 2017
180 Fremont tower, SF                                             640,000,000       June 2017
VTA Berryessa BART extension                                      770,000,000     December 2016
SF Muni 3rd Street Central Subway                                 840,000,000       June 2018
SF International Airport Terminal 1 Center                        1,100,000,000   February 2021
Apple Campus 2                                                    5,000,000,000   December 2017

          Bay area refinery work also draws labor for turnaround activities

SOUTHERN CALIFORNIA MARKET STARTED EARLY AND
               REMAINS BUSY
• DRIVING FORCE IN CALIFORNIA MARKET
  SINCE 2013
   • WILSHIRE GRAND CENTER    $979M
   • METROPLEX LA             $800M
   • WESTFIELD CENTURY CITY   $800M
   • OCEANWIDE PLAZA          $700M
   • USC VILLAGE              $650M
   • LAX TERMINAL 1           $381M

SOUTHERN CALIFORNIA MARKET WAS BUSY, NOW
                   SLOWING DOWN
   • DRIVING FORCE IN CALIFORNIA MARKET
     SINCE 2013
        • WILSHIRE GRAND CENTER            $979M
        • METROPLEX LA                     $800M
        • WESTFIELD CENTURY CITY           $800M
        • OCEANWIDE PLAZA                  $700M
        • USC VILLAGE                      $650M
        • LAX TERMINAL 1                   $381M

34 private projects in construction all over $100 M

RECENT TRENDS IN NORTHERN CALIFORNIA BIDS

                                    • SUBMITTED BIDS ARE DECREASING
                                    • PRICING FOR SUBCONTRACTOR TRADES IS
                                      INCREASING
                                    • ENGINEER’S ESTIMATES ARE ONLY STARTING
                                      TO REACT TO PRICING CHANGES

Industrial and Non-Public Works Projects are grabbing all available workers to meet
ambitious construction deadlines

COST FACTORS TO CONSIDER

• FUEL PRICING
• METALS PRICING
• LABOR

FUEL PRICES REMAIN LOW BUT ARE EXPECTED TO
                     INCREASE

• PRICE REMAINS THE SAME PRICE AS LAST YEAR AND A $1.00 A GALLON
  LOWER FROM TWO YEAS AGO
• BID PRICING HAS INCLUDED MARK-UPS FOR FUEL TO REACH PREVIOUS HIGH
  LEVELS

LOWER FUEL PRICES DELAY ROADWAY
                    CONSTRUCTION
• 225 ROADWAY IMPROVEMENT PROJECTS ARE CURRENTLY ”SHOVEL-READY.”
• LOWER FUEL PRICES MEANS LOWER TAX DOLLARS COMING IN FOR INFRASTRUCTURE REPAIRS
• $754 MILLION CUT THIS YEAR FROM STATE ROADWAY PROJECT FUNDS
• ESTIMATED $320 MILLION MAY BE CUT FROM NEXT YEAR’S BUDGET

METALS PRICING REMAIN STABLE BUT CONFIDENCE IS
                  LOW
• PRICES FOR CONSTRUCTION METALS
  PEAKED IN IN 2014.
• THE COST FOR COPPER, STEEL AND
  ALUMINUM HAS REMAINED LEVEL FOR PAST
  YEAR.
• VENDOR CONFIDENCE REMAINS LOW THAT
  MATERIAL PRICING WILL REMAIN STABLE AT
  THIS LEVEL- HAS NOT REALLY INCREASED IN
  OVER A YEAR.
• WE ARE ON A BUBBLE- COSTS ARE BEING
  MARKED UP WITH THE EXPECTATION THAT
  THE MARKET WILL RISE.

CONSTRUCTION LABOR MARKET IS CONSIDERED
               “NOT ATTRACTIVE”
• LOW APPEAL OF BLUE-COLLAR JOBS
  TO YOUTH
• PERCEIVED LACK OF OPPORTUNITIES
  FOR TRAINING AND ONGOING
  EDUCATION
• PERCEIVED LACK OF PROMOTION
  OPPORTUNITIES FOR THOSE ALREADY
  IN THIS LINE OF WORK

NUMBER OF CONSTRUCTION WORKERS IN US
      WORKFORCE REMAINS LOW
                                                 • CONSTRUCTION WORKERS ARE SLOWLY
                                                   RECOVERING FROM THE RECESSION BUT NOT
                                                   FAST ENOUGH
                                                 • OTHER AREAS OF THE COUNTRY ARE MORE
                                                   ATTRACTIVE IN TERMS OF COST OF LIVING AND
                                                   HOUSING

 Source: US Department of Labor and Statistics

LOCAL LABOR TRADES CURRENTLY HAVE SHORTAGES
             IN QUALIFIED LABOR
• FIRST TIER SUBCONTRACTORS ARE RESOURCE LIMITED
• OUT OF AREA PROJECTS DREW LABOR OUT OF BAY AREA
• CURRENT LIMITS ARE RAISING PRICES DUE TO LACK OF AVAILABLE BIDDERS.
• TRAINING PROGRAMS CANNOT IMMEDIATELY REPLACE WORKERS WHO HAVE LEFT.

BID PRICING CHANGES TO CONSIDER

           • NUMBER OF PROJECTS IN BAY AREA MARKET HAS
             SIGNIFICANTLY INCREASED, BUT INDIVIDUAL PROJECT BUDGET
             PRICES REMAIN LOW.
           • DELAY PROJECTS WITH LARGE ELECTRICAL, HVAC, AND
             COATINGS SUB WORK.
           • CONCENTRATE ON TRADES WITH GREATER AVAILABLE
             RESOURCES
              • CIVIL, MECHANICAL, ARCHITECTURAL
              • ROADWAY PAVING/BRIDGE PROJECTS ARE BENEFITTING FROM
                LOW PRICING AND READILY AVAILABLE MATERIALS

MORE SHORT TERM CHANGES TO CONSIDER

• INCREASE PROJECT ESTIMATES TO REFLECT SHORT TERM MARKET CONDITIONS
• INCREASE BID PERIODS FROM 30 TO 60 DAYS FOR SMALLER PROJECTS (LESS THAN $5
  MILLION)

REVIEW BID CONDITIONS AND TIMING

• LIMIT USE OF “LOCAL LABOR” PREFERENCES
• EXPAND USE OF OUTREACH PROGRAMS TO PLAN TIMING
   • USE ONLINE BID SERVICES TO REVIEW LOCAL BIDS ALREADY OUT
       • PLANET BIDS
       • E-BIDBOARD
       • BB ONLINE
       • CALTRANS

LOOKING TO THE NEAR FUTURE…

• MARKET SHOULD START TO RETURN TO NORMAL IN 6-12 MONTHS
   • RESOURCES WILL COMPLETE PREVIOUS WORK AND RETURN TO BAY AREA

• MATERIAL AND FUEL MARKETS WILL REMAIN QUESTIONABLE.
   • OFFSHORE MATERIAL DEMAND HAS SLOWED BUT IS STARTING TO INCREASE AGAIN
   • PLANNED REFINERY MAINTENANCE WILL IMPACT PRICE.
       • GULF COAST SUPPLIES ARE AT 10-YR HIGH TO IMPORT FUEL TO CALIFORNIA DURING 2016 TURNDOWNS
       • IMPORTS WILL KEEP FUEL AVAILABLE BUT DRIVE PRICES UP